I have a couple of small ebooks available on Amazon via Kindle direct publishing - I've just found a mistake in one of them so I fixed it and have reuploaded the file. I'm assuming that everyone who downloads the book in future will get the 'fixed' version, but what about the people who have already downloaded the book, will they have to delete the book and redownload? Or will kindle quietly fix it for them?

2 Answers
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According to the Publishing FAQ I found on Amazon, customers have to specifically request the new version:

If you’ve already purchased your book and subsequently revise the content and re-publish the updated version, you don’t need to re-purchase the book to get a copy. At this time, it’s not possible for publishers to receive the updated file without contacting KDP Support for help. We’re working to automate this feature and appreciate your understanding with our existing solution to manually send the updated content to your device.

We request your explicit permission, and will do the same for any customers who contact us to receive the updated content, prior to sending the revised file because the new version will not have previously saved Highlights, Last Page Read, Bookmarks, and the location of notes may not match. If this is acceptable, please email kdp-support@amazon.com confirming your permission and which title/s you’d like to have re-sent. Thank you.

Note: Customers who purchased the old content can also contact our Customer Service department to have the new file delivered.

I don't see how it confuses anything. Your answer below shows that it is not an automatic update, and the customer needs to confirm they want the update, which is exactly what the text I quoted says.
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Craig SeftonFeb 9 '12 at 19:51

Actually I believe you missed the mark here. The second paragraph states that they will not provide a copy of the new version unless the author grants "explicit permission". They will also not automatically provide a copy of the new version unless customers ask for it. Sorry for the downvote, but you missed the point of the statement.
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Steven DrennonFeb 9 '12 at 19:54

Also, the note at the bottom specifically refers to "customers": "Note: Customers who purchased the old content can also contact our Customer Service department to have the new file delivered."
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Craig SeftonFeb 9 '12 at 19:55

Two things here. 1) A customer sees on the book's page that the content has been updated and decides they want the new version. They must request it in order to get it. (Refers to Note at the bottom of your quote.) 2) The author contacts KDP Support to notify them that they have updated the book and want to alert their customers. KDP sends the e-mail and THEN the customer requests the new version. Option 1 almost never happens, which is why he needs to follow the steps for option2. This quote does not make it clear that they contact all your customers to give them that option!
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Steven DrennonFeb 9 '12 at 21:07

Actually, if you contact KDP Support, they will send out an e-mail to all customers who have already purchased your book to let them know that there is a new version available. They will send an e-mail to the people who have already purchased the book which directs them to respond to the e-mail with the word "Yes" in the first line of the response message. This automatically results in a new version being sent to the customer's device.

I have received these messages on at least half a dozen titles I have purchased. In addition to that, I had to make a major revision to one of my books and was able to get them to send out the automated message for my title as well. It may take them some time to respond (mine took two weeks and a gentle reminder). On the downside, they don't actually replace the existing file. Instead, they send a copy of the new file in addition to the original. This can get confusing for the customer!